The tax abatement program in DC helps lower income residents purchase a home by eliminating transfer, recordation, and property taxes. Homeownership is part of the American Dream for many, and these tax incentives help more people achieve it for themselves.
In order to qualify for tax abatement in DC, the value of the property purchased must be less than $367,200, and the owner must occupy the property as his principle residence. In addition, there are income limits depending on the number of people in your household. For a person living alone, the maximum allowable gross income (including all jobs, Social Security income, public assistance, retirement pay, unemployment compensation, military housing allowance, etc.) is $56,100. For a family of four, the income limit is $80,100. (Dollar figures are subject to change and are accurate as of December 11, 2012.) In Economic Development Zones, those figures increase to $66,220 and $94,600, respectively (as of May 25, 2012). Furthermore, you must be domiciled in DC, meaning that you have a DC driver's license or other form of ID from the DC government, register to vote in DC, and file DC income taxes. However, these domicile requirements can occur after the purchase of your new home in DC.
In general, the forms required for the tax abatement program in DC will be filed by your settlement company with the deed after your closing. The exemption from transfer and recordation taxes will occur immediately, meaning that you do not have to pay the customary 1.1% of the purchase price as a recordation tax. In addition, the seller's 1.1% transfer tax is usually credited to you at settlement.
Once you qualify, the DC Office of Tax Revenue (OTR) will abate your real estate property taxes for the first five years you live in your home. This exemption becomes effective after your deed is recorded, on the following October 1. Once you receive this approval from the OTR, notify your mortgage company if they hold your property taxes in escrow. This could reduce your monthly mortgage payment since most lien holders require you to add to your tax escrow account each month, so they can pay the tax on your behalf each year.
The income requirements for the tax abatement program in DC are only checked at the time of purchase, so your earning potential is not limited in future years. However, the DC government does conduct audits to ensure that the owner continues to occupy the exempt property during the five year tax abatement period. If the owner has moved while still enjoying tax abatement, the DC government will collect back taxes plus interest and penalties.
The tax abatement program in DC is available to individuals, non-profit organizations, shared equity investors, and cooperative housing associations. If you qualify, make sure to take advantage of the tax abatement program in DC.